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What to expect from the Autumn Budget 2018

What to expect from the Autumn Budget 2018

The Autumn Budget is shaping up to be unlike anything we have seen before.

For a while, it was not certain who would deliver it, with rumours of a Conservative party leadership contest, and the slight but growing possibility of an imminent general election.

But Chancellor Philip Hammond announced this week it will take place on Monday 29 October.

Then there's the current fiscal and policy environment. Tax revenues are riding high and there is talk of an end to the age of austerity.

However, Brexit-related fiscal uncertainty gives the Chancellor very little wriggle-room. 

While the government may be set against tax increases, the fact remains that new money will have to be found to fund the NHS and to provide a fiscal buffer against Brexit transition shocks.

The Chancellor must also meet the Conservative party manifesto commitment to eliminate the deficit by the mid-2020s.

Some of the Chancellor's challenges are not so unusual.

Tax giveaways?

The Budget should enhance the electoral standing of the government without the cost of unaffordable tax giveaways. It must address social issues without imposing unpopular new taxes.

Tax increases must be carefully targeted but require little parliamentary time. Finally, the overall direction of travel of fiscal policy should be clear and broadly accepted.

The Chancellor's pressing need is to show how he will deliver the Prime Minister's commitment to £20bn of additional NHS funding.

Some of this will come out of the general pot of taxation, but the Chancellor might feel that he could tick off several items on the government's to-do list and earn electoral support by using tax hypothecation to provide urgently needed funding for social care for the elderly.

This could provide a crucial boost to NHS finances, reduce bed-blocking and shorten waiting lists by allowing all patients to have the treatment they require.

But where would the tax come from? The ‘Amazon tax’ perhaps?

The Chancellor has already floated the idea of an internet sales tax, sometimes called the Amazon tax.

This bid to level the playing field between traditional high-street retailers and the large internet platforms will require very careful implementation: clicks-and-mortar high street businesses which also trade via internet platforms could suffer a double whammy if they fall foul of the new Amazon tax without any relief from business rates.

If this new, self-contained and eminently measurable tax was hypothecated to fund social care for the elderly, the Chancellor might find his popularity rising.

Hypothecating an internet sales tax to fund part of the NHS emphasises how both society and businesses change. There is no shame in the tax system changing to adapt.

Fuel and inheritance tax reliefs

Another area to watch is fuel duty. Fuel duty has been frozen for eight years and the longer the freeze continues, the more difficult it is to impose inflation-related increases.